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snapper,
burst of the housing bubble in 2008 was caused by lack of demand
And in 1920 the Fed caused the crash by bringing inflation down too quickly???
the fed took deflationary actions during a deflationary environment-- end result was major deflation, leading to the recession.Last edited by astralis; 19 Mar 13,, 18:17.There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
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snapper,
So what caused the housing bubble to burst - and the international financial crisis? You see to me you have this the wrong way around... I struggle to understand your view.
the housing bubble burst because of an uptick in home foreclosure rates. this in turn began a wave of panic that forced multiple subprime lenders into bankruptcy.
this, in turn, affected investment banks with holdings in mortgage-backed securities. this then led to further repercussions that affected home prices in the non-subprime category.
the financial field was already undergoing issues of its own prior to this, but the collapse of lehman brothers as a part of the housing bubble crisis led to a full-blown international financial crisis. this in turn led to an unprecedented tightening of credit/liquidity in the private market, leading to a collapse in aggregate demand.
it's this continued collapse which has prolonged the Great Recession, even as its original causes have largely been solved or ameliorated.There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
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dale,
But the graph you guys are using that looks flatter is just showing percent change from the previous month, and except for the one trough, it's all positive. Inflation is going steadily up and you know it.
NOT having long-term inflation means your economy is not growing or even shrinking.
the ideal situation is one where there is steady, low-level inflation, just as for a developed economy GDP growth should be steady, and relatively low.
currently inflation is at a very low rate. given that we're supposed to be economically recovering, it should be higher than it is today, at least in line with historical averages.
the fact that it isn't, shows that all the people whom fear hyperinflation is just around the corner as a result of Fed actions/stimulus have badly misplaced fears.Last edited by astralis; 19 Mar 13,, 19:36.There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
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Originally posted by astralis View Postsnapper,
you're confusing the events that caused the Great Recession with factors that have prolonged the recession.
the housing bubble burst because of an uptick in home foreclosure rates. this in turn began a wave of panic that forced multiple subprime lenders into bankruptcy.
this, in turn, affected investment banks with holdings in mortgage-backed securities. this then led to further repercussions that affected home prices in the non-subprime category.
the financial field was already undergoing issues of its own prior to this, but the collapse of lehman brothers as a part of the housing bubble crisis led to a full-blown international financial crisis. this in turn led to an unprecedented tightening of credit/liquidity in the private market, leading to a collapse in aggregate demand.
it's this continued collapse which has prolonged the Great Recession, even as its original causes have largely been solved or ameliorated.
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Originally posted by astralis View Postdale,
i'm not sure what your point is. in the long-run, there will be inflation as economic activity and money supply increases.
NOT having long-term inflation means your economy is not growing or even shrinking.
the ideal situation is one where there is steady, low-level inflation, just as for a developed economy GDP growth should be steady, and relatively low.
currently inflation is at a very low rate. given that we're supposed to be economically recovering, it should be higher than it is today, at least in line with historical averages.
the fact that it isn't, shows that all the people whom fear hyperinflation is just around the corner as a result of Fed actions/stimulus have badly misplaced fears.
-dale
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snapper,
In this why did the foreclosure rate rise? My argument, as you probably know, is because the Fed raised interest rates was it 6 times in early 2008?
I can't see the difference between this and what you accept the Feds actions did in the 1920s when they acted too quickly against inflation.
OTOH, when you do a deflationary measure in a deflationary environment the effect is not drowned, but is instead amplified.
More importantly I don't see your explanation of why the 1920s crash was so brief. Could you give me your account of this please?
this is a different situation from today. if you look at the historical record of recessions/depressions as a result of inflation-fighting, you'll see the aftermath is significantly different from the recessions/depressions that result because of lack of aggregate demand.
as krugman notes, "it's much harder to push private spending higher than to stop holding it down."There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
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Originally posted by astralis View Posthousing bubble had already peaked by late 2006-early 2007. the financial crisis was already in full swing by 2007.
Originally posted by astralis View PostFed action in 2007-8 were emergency measures to increase liquidity, which did little in comparison to the complete collapse of aggregate demand and wealth (holdings in the stock market fell from $20 trillion to $12 trillion-- nothing the Fed could do was going to offset -that-). it was a small amount of inflationary pressure against a hugely deflationary environment.
Originally posted by astralis View PostOTOH, when you do a deflationary measure in a deflationary environment the effect is not drowned, but is instead amplified.
Originally posted by astralis View Postthe immediate injection of millions of war veterans caused significant short-term deflation. but it only happened once, and as the economy adjusted to millions of new workers the medium-term environment became inflationary. this, coupled with looser Fed policy, led to a dramatic expansion of monetary supply in 1922-1925-- the real start of the "Roaring Twenties".
Originally posted by astralis View Postthis is a different situation from today. if you look at the historical record of recessions/depressions as a result of inflation-fighting, you'll see the aftermath is significantly different from the recessions/depressions that result because of lack of aggregate demand.
Originally posted by astralis View Postas krugman notes, "it's much harder to push private spending higher than to stop holding it down."
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Originally posted by dalem View PostHmm. But I see
http://research.stlouisfed.org/fred2/graph/?s[1][id]=CPIAUCSL
(can't get the pic to load for some reason).
I see inflation.
-dale
The Consumer Price Index is an index.
Inflation is the change in the index.
The most common measure of inflation is the percent change year-on-year.
The difference between the two graphs is read on the left side, vertically.
ADD: Since 1980, when unleaded gas was $1.25 a gallon, gas prices have increased one percentage point faster than overall consumer prices.
If the two rates of inflation were the same, that $3.90 gallon would now cost $3.20.Last edited by DOR; 20 Mar 13,, 03:16.Trust me?
I'm an economist!
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Originally posted by snapper View PostBy 1980 method of calculation inflation it is just below 10%. See Alternate Inflation Charts
Why do we never hear of the Great Depression of the 1920s?
It’s what economists call ‘retro.’Trust me?
I'm an economist!
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snapper,
So there were two bubbles bursting at the same time and they weren't related?
More importantly if this was an attempt to increase liquidity what were rises in interest rates from 2004-6? Presumably attempts to reduce liquidity - and that of course is part of my point. By raising rates the Fed directly contributed to bursting of the bubble it had created by flooring rates after the dotcom bubble burst.
So if I get this right... and please correct me if this not what you mean - returning veterans, who presumably didn't have jobs, found jobs without some massive Government programme? I mean was there some 'stimulus package'? It must have been remarkably effective. So they chaps came home and interest rates were high to fight inflation and yet they found jobs etc? How can that be?
there WAS a huge stimulus-- it was called World War 1. the War spurred a huge development of american industry-- munitions, automative, and ship-building, much of this funded by the UK and to a lesser extent, france.
in any case, trying to compare Industrial-age employment to the current information-age employment is foolish. far easier to employ huge numbers of unskilled/semi-skilled workers in the former.
So right now some inflation would be good right? It would help boost aggregate demand? Is this correct?There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
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